Implementing recommendations to boost long-term market growth: Taskforce

Infographics: TBS

The Capital Market Reform Taskforce has proposed changes to several rules based on an analysis of peer countries, saying if adopted, these reforms could significantly boost the market and bring long-term benefits to the capital market.  

The Bangladesh Securities and Exchange Commission (BSEC) formed a five-member taskforce in October last year to recommend necessary reforms in the capital market. 

Tasked with addressing 17 issues, the taskforce has already submitted recommendations for urgent matters requiring immediate action.  

So far, it has submitted draft reports on proposed amendments to mutual fund rules, margin rules, and IPO regulations, with the final report, including further recommendations, expected to be submitted by June.  

During a press conference held at the BSEC headquarters yesterday (27 March), the taskforce presented detailed recommendations on IPO-related matters, emphasising that it operates independently and impartially, without any directives from the BSEC.  

The press conference was attended by experts, including Professor Mohammad Helal Uddin from Dhaka University, former managing director of the Dhaka Stock Exchange KAM Majedur Rahman, AFM Nesaruddin from Huda Vasi Chowdhury & Co, and others.  

KAM Majedur explained that, previously, companies had the opportunity to prepare audit reports in a superficial manner; however, under the new recommendations, these opportunities will no longer exist.  

The taskforce has proposed establishing clear qualifications for authorised auditors. Regarding IPOs, he mentioned that an expert panel will be set up to review proposals.  

While the taskforce is working on 17 Terms of Reference, its immediate focus is on issues that will have the most impact on the capital market, such as negative equity and margin rules, he added.

Key recommendations

The taskforce has made several key recommendations to improve the capital market.  

First, the Dutch Auction method will be reinstated with minor modifications to enhance price discovery. The bidding limit for eligible investors will be reduced from 2% to 1% to encourage broader participation. 

Additionally, a three-month lock-in period will be applied to 50% of eligible investors holdings to promote thoughtful investment decisions. The 10% circuit breaker will not apply for the first three days post-listing to prevent excessive price fluctuations. 

Furthermore, no discounts will be offered from the cut-off price, ensuring issuers receive their expected premium.  

The IPO process will be streamlined, reducing the total duration to six months. The IPO checklist will be revamped, and redundant approval processes from BSEC will be eliminated. An online dashboard will be introduced to track IPO applications in real time.  

To attract new investors, the Tk50,000 investment requirement for IPO applications will be removed. Retail investors will have a 30% allocation for applications up to Tk2 lakh, eliminating the need for multiple applications under different names. High-net-worth individuals will now receive a 15% quota for investments above Tk2 lakh.  

Market quality will be improved by increasing the supply of quality stocks. Direct listing will be allowed for multinational companies and large corporations with turnovers exceeding Tk1,000 crore, with a reduced offload requirement of 10%.  

Large corporations with outstanding loans above Tk1,000 crore will be required to list. The minimum paid-up capital for IPOs will be raised to Tk30 crore for fixed-price offerings and Tk50 crore for book-building IPOs.  

To strengthen audit and governance, the taskforce has proposed creating a list of 20 qualified auditors with stricter financial reporting guidelines. 

A second independent auditor will review key areas to ensure accuracy in financial reporting. Stock exchanges will conduct mandatory site visits before granting listing approval. 

The taskforce also recommended that exchanges have primary approval authority before BSEC, meaning that if an exchange rejects an IPO, BSEC cannot override the decision.  

In terms of underwriting and operational efficiencies, the taskforce suggested allowing more institutions to underwrite IPOs to ensure effective coverage of undersubscribed portions. 

Regulatory fees will be reduced, and compliance processes will be simplified. An online IPO application system will be introduced to eliminate the need for physical signatures, improving overall efficiency.  

These reforms aim to improve capital market governance, attract new investors, and enhance transparency, ultimately fostering long-term growth in the sector.